The Government and HMRC are very concerned about fraudulent Coronavirus Job Retention Scheme claims, despite the rules and system having been designed to safeguard against this as far as possible.
Simply because of the large sums being made available, the scheme is likely to attract criminal fraud, as well as abuse by some genuine employers so HMRC has put in place a number of measures to minimise fraud, which include:
- the requirement for an employee to have already been submitted to HMRC prior to 19 March 2020.
- a 4-6 day payment processing period to allow background checks.
- checks on employers after a pay-out has been made to verify a claim was real.
The vast majority of employers are expected to do the right thing and in many cases they will have no choice because people genuinely cannot work and are therefore furloughed.
To be clear: furloughed employees are not able to do any work. Employees on furlough must not make money for or provide services to their employer.
What this means for your employees
We would hope that common sense ought to prevail if it is necessary to contact an employee on furlough to ask them a work-related question that only they know the answer to. However, any rogue employers who abuse the scheme by claiming back wage costs from HMRC knowing that their employees are still working for them, are likely to be dealt with very firmly indeed.
HMRC’s Chief Executive Jim Harra has announced a whistleblowing facility so that abuse can be reported – typically employees continuing to do productive work while receiving furlough pay and those who have been pressured into continuing to work while on furlough are urged to report their employer.
While this may sound unlikely, there will be employees finding themselves in these situations who will feel they are being asked to be complicit in something they are not comfortable with.
HMRC will hope that anyone who has got information about the scheme being abused will let them know and an online hotline service has been set up for this purpose.
How does this affect company directors?
Directors can potentially be placed on furlough, but any claim must be based on their PAYE earnings: dividend payments are not eligible.
HMRC’s guidance states that during furlough leave, company directors will be entitled to carry out their duties where reasonably required to fulfil the statutory obligations they owe to their company, provided they do no more than reasonably necessary for that purpose.
They should be very careful not to cross the line by carrying on their normal work and therefore furlough might only be a realistic option for directors in companies whose business simply cannot continue during the crisis.
Statutory duties are quite specific and limited. If a director is still talking to customers; talking to suppliers; marketing their business to keep it going and posting on social media; they will not be able to claim.
How likely is it that HMRC will prosecute?
Where abuses are discovered, there is a real risk that HMRC will seek to bring prosecutions for the offence of failing to prevent tax evasion.
This is a ‘strict liability’ offence and intent on the company’s part does not have to be proved to obtain a conviction. It is necessary to prove only that there has been criminal tax evasion that was ‘facilitated’ by a person or entity who performed services for or on behalf of the business.
Given HMRC’s public statement about the risk of abuse to the furlough system, it is likely that businesses will now be expected to act to mitigate the risk of tax evasion and ensure that they have “reasonable preventative procedures” in place to address the risk of tax evasion.